A bill has been introduced to the People’s Majlis to amend the Goods and Services Tax (GST) Act, enabling the collection of GST from goods and services provided by offshore booking platforms, foreign tour operators, and travel agents.
The bill, submitted on behalf of the government by Kulhudhuffushi MP Mohamed Dawood, states that these amendments aim to implement the "destination principle" in the Maldives. This measure was proposed by the government in the budget approved for the current year.
The proposed legislation seeks to amend clauses which stipulate that GST is only applicable to goods sold within the Maldives. The new language would broaden the scope to include all goods and services provided within the country. Furthermore, the bill proposes to amend the provision that currently limits the application of GST to businesses physically operating in the Maldives, which effectively restricts the tax to local entities.
To facilitate taxation on foreign tourism businesses, the amendments provide a clear definition of goods and services provided within the Maldives. It also specifies the types of business activities that will be subject to the tax.
Additionally, inbound tourism products provided by entities without a permanent place of business in the Maldives are now included under tourism sector goods and services. The bill also includes a detailed definition of "charter" to target charter trips sold by safaris.
The government proposes to implement these changes starting October 1, with such goods and services being taxed at the current Tourism Goods and Services Tax (TGST) rate of 16 percent.
Broadly, these legislative changes are aimed at businesses that send tourists to the Maldives, removing legal hurdles that currently prevent the collection of GST from such entities.
According to the cost estimate attached to the bill, the state will incur an expenditure of MVR 7.9 million to implement these changes. This includes a one-time cost of MVR 2.8 million and an annual recurrent expenditure of MVR 5.1 million for additional staffing.
By taxing foreign businesses under the destination principle, the government estimates an annual revenue increase of MVR 1.6 billion. This projection includes MVR 299.3 million from overseas travel agents and MVR 1.3 billion from foreign tour operators.
As TGST must be paid in foreign currency, this revenue boost is expected to bring an additional USD 104.1 million into the state coffers.
The government noted that since offshore booking platforms, tour operators, and travel agents do not have a physical presence in the Maldives, GST collection will commence once the Maldives Inland Revenue Authority (MIRA) establishes communication channels and simplified tax payment arrangements for these parties.
The government further stated that as MIRA establishes these connections with foreign businesses, the projected revenue is expected to increase.
The bill to amend the GST Act has been scheduled for its first reading in tomorrow’s parliamentary session.
The government’s move to increase dollar revenue comes at a time when the country is facing a severe dollar shortage. The exchange rate on the black market has surged to unprecedented levels in Maldivian history.
